Thursday, May 3, 2018

Norway holds rate, still expects rate hike after summer

Norway's central bank left its key policy rate at 0.50 percent, as widely expected, but said the economy had not changed substantially since March when "the outlook and balance of risks suggested that the key policy rate would most likely be raised after summer 2018."
"The Executive Board's assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in the March Report," Norges Bank (NB) said.
"Underlying inflation is below the inflation target, but the driving forces indicate that it will rise," the central bank said, adding the policy decision was unanimous.
NB has kept its rate steady since March 2016 but pulled forward the expected time for raising its rate at the board's meeting in March when it forecast the policy rate would average 0.6 percent this year, up from 0.5 percent in the December policy report.
At that point NB Governor Oeystein Olsen said the rate hike would most likely come in August or September and he did not anticipate more than one hike this year.
Since then, there is little new information about growth in Norway's economy, though a decline in confidence in Europe may indicate that growth in the trading partners has been slightly weaker than projected and "heightened political tensions and a risk of protectionism are fueling uncertainty about the growth outlook," the executive board said.
Oil prices, however, have risen and are higher than assumed in March while global inflation has picked up somewhat in recent months, NB said.
Norwegian wage settlements in manufacturing of 2.8 percent were also consistent with forecasts while inflation was lower than projected.
Norway's headline inflation was steady at 2.2 percent in March and February while inflation adjusted for taxes and energy eased to 1.2 percent from 1.4 percent, and imported goods inflation was weaker than expected while the exchange rate of the krone, as measured by the import-weighted index, was also weaker than projected.
Norway's economy 1.8 percent in 2017 and in March NB raised its 2018 growth forecast to 2.6 percent but lowered the 2019 forecast to 2.0 percent.
The Norwegian krone has firmed this year against the U.S. dollar though it has softened in recent weeks. The krone was trading at 8.05 to the dollar today, up 1.9 percent since the start of this year.

Norges Bank issued the following statement:

"In the March 2018 Monetary Policy Report, the Executive Board's assessment was that the economic upturn was continuing and that the output gap in the Norwegian economy was closing. Underlying inflation was low, but rising capacity utilisation was expected to push up price and wage inflation further out. The Executive Board's assessment of the outlook and balance of risks suggested that the key policy rate would most likely be raised after summer 2018.

The Executive Board's assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in the March Report. Underlying inflation is below the inflation target, but the driving forces indicate that it will rise.

"The outlook and the balance of risks do not appear to have changed substantially since the March Report. This suggests keeping the key policy rate unchanged at this meeting", says Governor Øystein Olsen."